Guide to Small Business COVID-19 Emergency Loans

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses.

Importantly, these PPP loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.

UPDATE: Congress recently approved an additional $310 billion in funding to restore the PPP Program, which had run out of money.

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Here are the questions you may be asking—and what you need to know.

You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating.

While the program is open until June 30, 2020, the government is advising borrowers to apply as soon as possible given the loan cap on the program.

1. Am I eligible?

You are eligible to apply for a PPP loan if you are:

A small business with 500 or fewer employees

Defined as “small” by SBA Size Standard that allows for higher employee threshold or is revenue based; or

A small business with maximum tangible net worth up to $15 million and the average net income for full 2 fiscal years prior to application does not exceed $5 million

A 501(c)(3) with 500 or fewer employees

A sole proprietor, independent contractor, or self-employed

A Tribal business concern that meets the SBA size standard

A 501(c)(19) Veterans Organization that meets the SBA size standard

In addition, some special rules may make you eligible:

If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis

If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply

Small businesses that have minority shareholders (private equity or venture capital) can still qualify if those stakeholders relinquish rights

2. What will lenders be looking for?

The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations

The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments

Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here

From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold SBA Disaster Loans into a PPP loan)

If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.

How do I calculate my average monthly payroll costs?

INCLUDED Payroll Costs

For Employers: The sum of payments of any compensation with respect to employees that is a:

salary, wage, commission, or similar compensation;

payment of cash tip or equivalent;

payment for vacation, parental, family, medical, or sick leave

allowance for dismissal or separation

payment for group health care and retirement benefits

payment of state or local tax assessed on the compensation of the employee

For Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The net income not more than $100,000 in one year.

EXCLUDED Payroll Costs

Compensation of an individual employee in excess of an annual salary of $100,000 (Note: employer contributions to healthcare and retirement benefits are not part of amount deemed in excess of $100,000 annual salary)

Employer portion of payroll taxes

Any compensation of an employee whose principal place of residence is outside of the United States

Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act

What if I bring back employees or restore wages?

Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.

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